Optimizing Closed Payment Networks on the Lightning Network: Dual Central Node Approach

Jeffy Yu

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arXiv · 2312.03920

Optimizing Closed Payment Networks on the Lightning Network: Dual Central Node Approach

Jeffy Yu

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Abstract

The Lightning Network, known for its millisecond settlement speeds and low transaction fees, offers a compelling alternative to traditional payment processors, which often have higher fees and longer processing times. This is particularly significant for the unbanked population, which lacks access to standard financial services. Our research targets businesses looking to shift their client to client payment processes, such as B2B invoicing, remittances, and cross-border transactions, to the Lightning Network. We compare the efficiency of interconnected mesh nodes (complete graph topology) with central routing nodes (star graph topology), with a specific focus on the dual central node approach. This approach introduces features like circular rebalancing, redundancy, and a closed network system. Through a basic SimPy model, we assess the network's throughput in a 100 node scenario. While this approach centralizes a technology initially designed for decentralization, it fosters broader enterprise adoption of Bitcoin-based payment networks and encourages participation in the decentralized financial ecosystem. Our study also considers the regulatory implications of using central routing nodes, possibly classified as payment processors under Money Transmission Laws (MTL). These findings aim to contribute to the discourse on the Lightning Network's application in business, highlighting its potential to drive shifts in financial technology towards more decentralized systems.

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Jeffy Yu. 2023-12-06. Optimizing Closed Payment Networks on the Lightning Network: Dual Central Node Approach. https://arxiv.org/abs/2312.03920

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